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Dawn and William form Orange Corporation. Dawn transfers equipment worth $475,000 (basis of $100,000) and $25,000 cash to Orange Corporation for 50% of its stock. William transfers a building and land worth $525,000 (basis of $200,000) for 50% of Orange's stock and $25,000 cash. Discuss the result of these transfers.

a) Dawn recognizes a gain of $375,000; William recognizes a gain of $325,000.

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